COMERICA INC /NEW/ - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10706

____________________________________________________________________________________

Comerica Incorporated

(Exact name of registrant as specified in its charter)

___________________________________________________________________________________



Delaware	38-1998421
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Comerica Bank Tower

1717 Main Street, MC 6404

Dallas, Texas 75201

(Address of principal executive offices)

(Zip Code)

(214) 462-6831

(Registrant’s telephone number, including area code)

_________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

$5 par value common stock:

Outstanding as of April 25, 2016: 175,133,972 shares

Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets at March 31, 2016 (unaudited) and December 31, 2015	1

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (unaudited)	2

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2016 and 2015 (unaudited)	3

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	4

Notes to Consolidated Financial Statements (unaudited)	5

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	54

ITEM 4. Controls and Procedures	54

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings	54

ITEM 1A. Risk Factors	54

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	54

ITEM 6. Exhibits	55

Signature	56

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries



(in millions, except share data)	March 31, 2016			December 31, 2015
	(unaudited)
ASSETS
Cash and due from banks	$	977		$	1,157

Interest-bearing deposits with banks	2,025			4,990
Other short-term investments	94			113

Investment securities available-for-sale	10,607			10,519
Investment securities held-to-maturity	1,907			1,981

Commercial loans	31,562			31,659
Real estate construction loans	2,290			2,001
Commercial mortgage loans	8,982			8,977
Lease financing	731			724
International loans	1,455			1,368
Residential mortgage loans	1,874			1,870
Consumer loans	2,483			2,485
Total loans	49,377			49,084
Less allowance for loan losses	(724		)	(634		)
Net loans	48,653			48,450
Premises and equipment	541			550
Accrued income and other assets	4,203			4,117
Total assets	$	69,007		$	71,877

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	28,025		$	30,839

Money market and interest-bearing checking deposits	22,872			23,532
Savings deposits	2,006			1,898
Customer certificates of deposit	3,401			3,552
Foreign office time deposits	47			32
Total interest-bearing deposits	28,326			29,014
Total deposits	56,351			59,853
Short-term borrowings	514			23
Accrued expenses and other liabilities	1,389			1,383
Medium- and long-term debt	3,109			3,058
Total liabilities	61,363			64,317

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares	1,141			1,141
Capital surplus	2,158			2,173
Accumulated other comprehensive loss	(328		)	(429		)
Retained earnings	7,097			7,084
Less cost of common stock in treasury - 53,086,733 shares at 3/31/16 and 52,457,113 shares at 12/31/15	(2,424		)	(2,409		)
Total shareholders’ equity	7,644			7,560
Total liabilities and shareholders’ equity	$	69,007		$	71,877

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Comerica Incorporated and Subsidiaries



	Three Months Ended March 31,
(in millions, except per share data)	2016			2015
INTEREST INCOME
Interest and fees on loans	$	406		$	378
Interest on investment securities	62			53
Interest on short-term investments	4			4
Total interest income	472			435
INTEREST EXPENSE
Interest on deposits	10			11
Interest on medium- and long-term debt	15			11
Total interest expense	25			22
Net interest income	447			413
Provision for credit losses	148			14
Net interest income after provision for credit losses	299			399
NONINTEREST INCOME
Card fees	74			64
Service charges on deposit accounts	55			55
Fiduciary income	46			47
Commercial lending fees	20			25
Letter of credit fees	13			13
Bank-owned life insurance	9			9
Foreign exchange income	10			10
Brokerage fees	4			4
Net securities losses	(2		)	(2		)
Other noninterest income	17			27
Total noninterest income	246			252
NONINTEREST EXPENSES
Salaries and benefits expense	248			253
Outside processing fee expense	79			74
Net occupancy expense	38			38
Equipment expense	13			13
Software expense	29			23
FDIC insurance expense	11			9
Advertising expense	4			6
Litigation-related expense	—			1
Other noninterest expenses	38			39
Total noninterest expenses	460			456
Income before income taxes	85			195
Provision for income taxes	25			61
NET INCOME	60			134
Less income allocated to participating securities	1			2
Net income attributable to common shares	$	59		$	132
Earnings per common share:
Basic	$	0.34		$	0.75
Diluted	0.34			0.73

Comprehensive income	161			176

Cash dividends declared on common stock	37			36
Cash dividends declared per common share	0.21			0.20

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries



	Common Stock							Accumulated Other Comprehensive Loss									Total Shareholders’ Equity
(in millions, except per share data)	Shares Outstanding		Amount		Capital Surplus			Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Shareholders’ Equity

BALANCE AT DECEMBER 31, 2014	179.0		$	1,141	$	2,188		$	(412	)	$	6,744		$	(2,259	)	$	7,402
Net income	—		—		—			—			134			—			134
Other comprehensive income, net of tax	—		—		—			42			—			—			42
Cash dividends declared on common stock ($0.20 per share)	—		—		—			—			(36		)	—			(36		)
Purchase of common stock	(1.5	)	—		—			—			—			(66		)	(66		)
Net issuance of common stock under employee stock plans	0.6		—		(16		)	—			(2		)	25			7
Share-based compensation	—		—		16			—			—			—			16
Other	—		—		—			—			1			—			1
BALANCE AT MARCH 31, 2015	178.1		$	1,141	$	2,188		$	(370	)	$	6,841		$	(2,300	)	$	7,500

BALANCE AT DECEMBER 31, 2015	175.7		$	1,141	$	2,173		$	(429	)	$	7,084		$	(2,409	)	$	7,560
Net income	—		—		—			—			60			—			60
Other comprehensive income, net of tax	—		—		—			101			—			—			101
Cash dividends declared on common stock ($0.21 per share)	—		—		—			—			(37		)	—			(37		)
Purchase of common stock	(1.4	)	—		—			—			—			(49		)	(49		)
Net issuance of common stock under employee stock plans	0.8		—		(35		)	—			(10		)	34			(11		)
Share-based compensation	—		—		20			—			—			—			20
BALANCE AT MARCH 31, 2016	175.1		$	1,141	$	2,158		$	(328	)	$	7,097		$	(2,424	)	$	7,644

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries



	Three Months Ended March 31,
(in millions)	2016			2015
OPERATING ACTIVITIES
Net income	$	60		$	134
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	148			14
Benefit for deferred income taxes	(39		)	(21		)
Depreciation and amortization	30			30
Net periodic defined benefit cost	3			11
Share-based compensation expense	20			16
Net amortization of securities	2			4
Accretion of loan purchase discount	(2		)	(3		)
Net securities losses	2			2
Net gains on sales of foreclosed property	(1		)	—
Excess tax benefits from share-based compensation arrangements	—			(2		)
Net change in:
Accrued income receivable	(4		)	(6		)
Accrued expenses payable	10			(31		)
Other, net	16			190
Net cash provided by operating activities	245			338
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions	336			393
Sales	14			37
Purchases	(291		)	(487		)
Investment securities held-to-maturity:
Maturities and redemptions	75			66
Net change in loans	(352		)	(487		)
Proceeds from sales of foreclosed property	5			2
Net increase in premises and equipment	(27		)	(25		)
Purchases of Federal Home Loan Bank stock	(21		)	—
Other, net	3			—
Net cash used in investing activities	(258		)	(501		)
FINANCING ACTIVITIES
Net change in:
Deposits	(3,537		)	184
Short-term borrowings	491			(36		)
Common stock:
Repurchases	(49		)	(66		)
Cash dividends paid	(37		)	(36		)
Issuances under employee stock plans	1			6
Excess tax benefits from share-based compensation arrangements	—			2
Other, net	(1		)	—
Net cash (used in) provided by financing activities	(3,132		)	54
Net decrease in cash and cash equivalents	(3,145		)	(109		)
Cash and cash equivalents at beginning of period	6,147			6,071
Cash and cash equivalents at end of period	$	3,002		$	5,962
Interest paid	$	19		$	19
Income taxes paid (refunds received)	2			(103		)
Noncash investing and financing activities:
Loans transferred to other real estate	17			2

See notes to consolidated financial statements.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Organization

The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Certain items in prior periods were reclassified to conform to the current presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report of Comerica Incorporated and Subsidiaries (the Corporation) on Form 10-K for the year ended December 31, 2015.

Pending Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842),” (ASU 2016-02), to increase the transparency and comparability of lease recognition and disclosure. The update requires lessees to recognize lease contracts with a term greater than one year on the balance sheet, while recognizing expenses on the income statement in a manner similar to current guidance. For lessors, the update makes targeted changes to the classification criteria and the lessor accounting model to align the guidance with the new lessee model and revenue guidance. ASU 2016-02 is effective for the Corporation on January 1, 2019 and must be applied using the modified retrospective approach. Early adoption is permitted. The Corporation is currently evaluating the impact of adopting ASU 2016-02.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting,” (ASU 2016-09), which intends to simplify accounting for share based payment transactions, including the income tax consequences and classification of awards. Among other items, the update requires excess tax benefits and deficiencies to be recognized as a component of income taxes within the income statement rather than other comprehensive income as required in current guidance. ASU 2016-09 is effective for the Corporation on January 1, 2017. The recognition of excess tax benefits and deficiencies in the income statement must be adopted prospectively. The method of transition required will differ for other items being amended. Early adoption is permitted. The impact to the Corporation upon adoption is dependent on the market value per share of the Corporation's common stock at option expiration dates and restricted stock vesting dates.

NOTE 2 – FAIR VALUE MEASUREMENTS

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.

Refer to Note 1 to the consolidated financial statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2015 for further information about the fair value hierarchy, descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS

The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015.



(in millions)	Total		Level 1		Level 2		Level 3
March 31, 2016
Trading securities:
Deferred compensation plan assets	$	83	$	83	$	—	$	—
Equity and other non-debt securities	3		3		—		—
Total trading securities	86		86		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,823		2,823		—		—
Residential mortgage-backed securities (a)	7,591		—		7,591		—
State and municipal securities	9		—		—		9		(b)
Corporate debt securities	1		—		—		1		(b)
Equity and other non-debt securities	183		132		—		51		(b)
Total investment securities available-for-sale	10,607		2,955		7,591		61
Derivative assets:
Interest rate contracts	407		—		387		20
Energy derivative contracts	393		—		393		—
Foreign exchange contracts	53		—		53		—
Warrants	2		—		—		2
Total derivative assets	855		—		833		22
Total assets at fair value	$	11,548	$	3,041	$	8,424	$	83
Derivative liabilities:
Interest rate contracts	$	169	$	—	$	169	$	—
Energy derivative contracts	391		—		391		—
Foreign exchange contracts	48		—		48		—
Total derivative liabilities	608		—		608		—
Deferred compensation plan liabilities	83		83		—		—
Total liabilities at fair value	$	691	$	83	$	608	$	—


(a)	Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


(b)	Auction-rate securities.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries



(in millions)	Total		Level 1		Level 2		Level 3
December 31, 2015
Trading securities:
Deferred compensation plan assets	$	89	$	89	$	—	$	—
Equity and other non-debt securities	3		3		—		—
Total trading securities	92		92		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,763		2,763		—		—
Residential mortgage-backed securities (a)	7,545		—		7,545		—
State and municipal securities	9		—		—		9		(b)
Corporate debt securities	1		—		—		1		(b)
Equity and other non-debt securities	201		134		—		67		(b)
Total investment securities available-for-sale	10,519		2,897		7,545		77
Derivative assets:
Interest rate contracts	286		—		277		9
Energy derivative contracts	475		—		475		—
Foreign exchange contracts	57		—		57		—
Warrants	2		—		—		2
Total derivative assets	820		—		809		11
Total assets at fair value	$	11,431	$	2,989	$	8,354	$	88
Derivative liabilities:
Interest rate contracts	$	92	$	—	$	92	$	—
Energy derivative contracts	472		—		472		—
Foreign exchange contracts	46		—		46		—
Total derivative liabilities	610		—		610		—
Deferred compensation plan liabilities	89		89		—		—
Total liabilities at fair value	$	699	$	89	$	610	$	—


(a)	Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


(b)	Auction-rate securities.

There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2 and Level 3 fair value measurements during each of the three-month periods ended March 31, 2016 and 2015.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-month periods ended March 31, 2016 and 2015.



			Net Realized/Unrealized Gains (Losses) (Pretax)
			Net Realized/Unrealized Gains (Losses) (Pretax)
	Balance at Beginning of Period		Recorded in Earnings								Recorded in Other Comprehensive Income (Loss)							Balance at End of Period

(in millions)			Realized				Unrealized								Sales
Three Months Ended March 31, 2016
Investment securities available-for-sale:
State and municipal securities (a)	$	9	$	—			$	—			$	—			$	—		$	9
Corporate debt securities (a)	1		—				—				—				—			1
Equity and other non-debt securities (a)	67		—				—				(1		)	(b)	(15		)	51
Total investment securities available-for-sale	77		—				—				(1		)	(b)	(15		)	61
Derivative assets:
Interest rate contracts	9		—				11			(c)	—				—			20
Warrants	2		—				—				—				—			2
Three Months Ended March 31, 2015
Investment securities available-for-sale:
State and municipal securities (a)	$	23	$	—			$	—			$	—			$	—		$	23
Corporate debt securities (a)	1		—				—				—				—			1
Equity and other non-debt securities (a)	112		(2		)	(d)	—				1			(b)	(40		)	71
Total investment securities available-for-sale	136		(2		)	(d)	—				1			(b)	(40		)	95
Derivative assets:
Interest rate contracts	—		—				11			(c)	—				—			11
Warrants	4		—				(1		)	(c)	—				—			3


(a)	Auction-rate securities.


(b)	Recorded in "net unrealized gains (losses) on investment securities available-for-sale" in other comprehensive income (loss).


(c)	Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements of comprehensive income.


(d)	Realized and unrealized gains and losses due to changes in fair value recorded in "net securities losses" on the consolidated statements of comprehensive income.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS

The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. The following table presents assets recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015.



(in millions)	Total		Level 2		Level 3
March 31, 2016
Loans held-for-sale:
Commercial	$	7	$	7	$	—
Loans:
Commercial	346		—		346
Commercial mortgage	11		—		11
International	27		—		27
Total loans	384		—		384
Other real estate	1		—		1
Total assets at fair value	$	392	$	7	$	385
December 31, 2015
Loans held-for-sale:
Commercial	$	8	$	8	$	—
Loans:
Commercial	134		—		134
Commercial mortgage	11		—		11
International	8		—		8
Total loans	153		—		153
Other real estate	2		—		2
Total assets at fair value excluding investments recorded at net asset value	163		8		155
Other investments recorded at net asset value:
Nonmarketable equity securities (a)	1
Total assets at fair value	$	164


(a)	Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015 included loans for which a specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties was less than the cost basis. For both asset classes, the unobservable inputs were the additional adjustments applied by management to the appraised values to reflect such factors as non-current appraisals and revisions to estimated time to sell. These adjustments are determined based on qualitative judgments made by management on a case-by-case basis and are not quantifiable inputs, although they are used in the determination of fair value.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The Corporation's Level 3 recurring fair value measurements primarily include auction-rate securities where fair value is determined using an income approach based on a discounted cash flow model and certain interest rate derivative contracts where credit valuation adjustments are significant to the overall fair value of the derivative. The inputs in the table below reflect management's expectation of continued illiquidity in the secondary auction-rate securities market due to a lack of market activity for the issuers remaining in the portfolio, a lack of market incentives for issuer redemptions, and the expectation for a continuing low interest rate environment. The March 31, 2016 workout periods reflect the view that short-term interest rates could rise at a slower pace in 2016 than was expected at December 31, 2015.



			Discounted Cash Flow Model
			Unobservable Input
	Fair Value (in millions)		Discount Rate	Workout Period (in years)
March 31, 2016
State and municipal securities (a)	$	9	5% - 6%	1 - 3
Equity and other non-debt securities (a)	51		6% - 9%	1 - 2
December 31, 2015
State and municipal securities (a)	$	9	3% - 8%	1 - 2
Equity and other non-debt securities (a)	67		4% - 9%	1


(a)	Auction-rate securities.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS

The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s consolidated balance sheets are as follows:



	Carrying Amount			Estimated Fair Value
(in millions)				Total			Level 1		Level 2		Level 3
March 31, 2016
Assets
Cash and due from banks	$	977		$	977		$	977	$	—	$	—
Interest-bearing deposits with banks	2,025			2,025			2,025		—		—
Investment securities held-to-maturity	1,907			1,927			—		1,927		—
Loans held-for-sale (a)	8			8			—		8		—
Total loans, net of allowance for loan losses (b)	48,653			48,588			—		—		48,588
Customers’ liability on acceptances outstanding	4			4			4		—		—
Restricted equity investments	113			113			113		—		—
Nonmarketable equity securities (c) (d)	10			18
Liabilities
Demand deposits (noninterest-bearing)	28,025			28,025			—		28,025		—
Interest-bearing deposits	24,925			24,925			—		24,925		—
Customer certificates of deposit	3,401			3,390			—		3,390		—
Total deposits	56,351			56,340			—		56,340		—
Short-term borrowings	514			514			514		—		—
Acceptances outstanding	4			4			4		—		—
Medium- and long-term debt	3,109			3,029			—		3,029		—
Credit-related financial instruments	(83		)	(83		)	—		—		(83		)
December 31, 2015
Assets
Cash and due from banks	$	1,157		$	1,157		$	1,157	$	—	$	—
Interest-bearing deposits with banks	4,990			4,990			4,990		—		—
Investment securities held-to-maturity	1,981			1,973			—		1,973		—
Loans held-for-sale (a)	21			21			—		21		—
Total loans, net of allowance for loan losses (b)	48,450			48,269			—		—		48,269
Customers’ liability on acceptances outstanding	5			5			5		—		—
Restricted equity investments	92			92			92		—		—
Nonmarketable equity securities (c) (d)	10			18
Liabilities
Demand deposits (noninterest-bearing)	30,839			30,839			—		30,839		—
Interest-bearing deposits	25,462			25,462			—		25,462		—
Customer certificates of deposit	3,552			3,536			—		3,536		—
Total deposits	59,853			59,837			—		59,837		—
Short-term borrowings	23			23			23		—		—
Acceptances outstanding	5			5			5		—		—
Medium- and long-term debt	3,058			3,032			—		3,032		—
Credit-related financial instruments	(83		)	(83		)	—		—		(83		)


(a)	Included $7 million and $8 million impaired loans held-for-sale recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015, respectively.


(b)	Included $384 million and $153 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015, respectively.


(c)	Included $1 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at December 31, 2015.


(d)	Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 3 - INVESTMENT SECURITIES

A summary of the Corporation’s investment securities follows:



(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2016
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,769	$	54	$	—	$	2,823
Residential mortgage-backed securities (a)	7,468		135		12		7,591
State and municipal securities	9		—		—		9
Corporate debt securities	1		—		—		1
Equity and other non-debt securities	183		1		1		183
Total investment securities available-for-sale (b)	$	10,430	$	190	$	13	$	10,607
Investment securities held-to-maturity (c):
Residential mortgage-backed securities (a)	$	1,907	$	20	$	—	$	1,927

December 31, 2015
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,769	$	1	$	7	$	2,763
Residential mortgage-backed securities (a)	7,513		76		44		7,545
State and municipal securities	9		—		—		9
Corporate debt securities	1		—		—		1
Equity and other non-debt securities	199		2		—		201
Total investment securities available-for-sale (b)	$	10,491	$	79	$	51	$	10,519
Investment securities held-to-maturity (c):
Residential mortgage-backed securities (a)	$	1,981	$	2	$	10	$	1,973


(a)	Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


(b)	Included auction-rate securities at amortized cost and fair value of $61 million and $60 million, respectively as of March 31, 2016 and $76 million and $77 million, respectively, as of December 31, 2015.


(c)	The amortized cost of investment securities held-to-maturity included net unrealized losses of $14 million at March 31, 2016 and $15 million at December 31, 2015 related to securities transferred from available-for-sale, which are included in accumulated other comprehensive loss.

A summary of the Corporation’s investment securities in an unrealized loss position as of March 31, 2016 and December 31, 2015 follows:



	Temporarily Impaired
	Less than 12 Months					12 Months or more					Total
(in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2016
Residential mortgage-backed securities (a)	$	137	$	—		$	1,989	$	25		$	2,126	$	25
State and municipal securities (b)	—		—			9		—		(c)	9		—		(c)
Corporate debt securities (b)	—		—			1		—		(c)	1		—		(c)
Equity and other non-debt securities (b)	51		1			—		—			51		1
Total temporarily impaired securities	$	188	$	1		$	1,999	$	25		$	2,187	$	26
December 31, 2015
U.S. Treasury and other U.S. government agency securities	$	2,265	$	7		$	—	$	—		$	2,265	$	7
Residential mortgage-backed securities (a)	2,665		21			1,976		51			4,641		72
State and municipal securities (b)	—		—			9		—		(c)	9		—		(c)
Corporate debt securities (b)	—		—			1		—		(c)	1		—		(c)
Equity and other non-debt securities (b)	14		—		(c)	—		—			14		—		(c)
Total temporarily impaired securities	$	4,944	$	28		$	1,986	$	51		$	6,930	$	79


(a)	Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


(b)	Primarily auction-rate securities.


(c)	Unrealized losses less than $0.5 million.

At March 31, 2016, the Corporation had 109 securities in an unrealized loss position with no credit impairment, including 63 residential mortgage-backed securities, 16 state and municipal auction-rate securities, one corporate auction-rate debt security

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

and 29 equity and other non-debt auction-rate preferred securities. As of March 31, 2016, approximately 95 percent of the aggregate par value of auction-rate securities have been redeemed or sold since acquisition, of which approximately 90 percent were redeemed at or above cost. The unrealized losses for these securities resulted from changes in market interest rates and liquidity. The Corporation ultimately expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not that the Corporation will be required to sell the securities in an unrealized loss position prior to recovery of amortized cost. The Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2016.

Sales, calls and write-downs of investment securities available-for-sale resulted in no securities gains and $2 million of securities losses in each of the three-month periods ended March 31, 2016, and 2015, recorded in “net securities losses” on the consolidated statements of comprehensive income, computed based on the adjusted cost of the specific security.

The following table summarizes the amortized cost and fair values of debt securities by contractual maturity. Securities with multiple maturity dates are classified in the period of final maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



(in millions)	Available-for-sale				Held-to-maturity
March 31, 2016	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Contractual maturity
Within one year	$	10	$	10	$	—	$	—
After one year through five years	3,002		3,058		—		—
After five years through ten years	1,438		1,490		—		—
After ten years	5,797		5,866		1,907		1,927
Subtotal	10,247		10,424		1,907		1,927
Equity and other non-debt securities	183		183		—		—
Total investment securities	$	10,430	$	10,607	$	1,907	$	1,927

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities available-for-sale with total amortized cost and fair value of $7.5 billion and $7.6 billion, respectively, and residential mortgage-backed securities held-to-maturity with a total amortized cost and fair value of $1.9 billion. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.

At March 31, 2016, investment securities with a carrying value of $1.8 billion were pledged where permitted or required by law to secure $1.2 billion of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

The following table presents an aging analysis of the recorded balance of loans.



	Loans Past Due and Still Accruing
(in millions)	30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans		Total Loans
March 31, 2016
Business loans:
Commercial	$	44	$	19	$	2	$	65	$	547	$	30,950	$	31,562
Real estate construction:
Commercial Real Estate business line (a)	—		—		—		—		—		1,947		1,947
Other business lines (b)	—		3		—		3		—		340		343
Total real estate construction	—		3		—		3		—		2,287		2,290
Commercial mortgage:
Commercial Real Estate business line (a)	18		13		—		31		8		2,129		2,168
Other business lines (b)	7		5		2		14		39		6,761		6,814
Total commercial mortgage	25		18		2		45		47		8,890		8,982
Lease financing	—		—		—		—		6		725		731
International	10		12		—		22		27		1,406		1,455
Total business loans	79		52		4		135		627		44,258		45,020
Retail loans:
Residential mortgage	6		1		9		16		26		1,832		1,874
Consumer:
Home equity	5		2		—		7		27		1,704		1,738
Other consumer	1		1		—		2		1		742		745
Total consumer	6		3		—		9		28		2,446		2,483
Total retail loans	12		4		9		25		54		4,278		4,357
Total loans	$	91	$	56	$	13	$	160	$	681	$	48,536	$	49,377
December 31, 2015
Business loans:
Commercial	$	46	$	12	$	13	$	71	$	238	$	31,350	$	31,659
Real estate construction:
Commercial Real Estate business line (a)	5		—		—		5		—		1,676		1,681
Other business lines (b)	3		—		—		3		1		316		320
Total real estate construction	8		—		—		8		1		1,992		2,001
Commercial mortgage:
Commercial Real Estate business line (a)	7		—		1		8		16		2,080		2,104
Other business lines (b)	7		5		3		15		44		6,814		6,873
Total commercial mortgage	14		5		4		23		60		8,894		8,977
Lease financing	—		—		—		—		6		718		724
International	2		—		—		2		8		1,358		1,368
Total business loans	70		17		17		104		313		44,312		44,729
Retail loans:
Residential mortgage	26		1		—		27		27		1,816		1,870
Consumer:
Home equity	5		3		—		8		27		1,685		1,720
Other consumer	7		—		—		7		—		758		765
Total consumer	12		3		—		15		27		2,443		2,485
Total retail loans	38		4		—		42		54		4,259		4,355
Total loans	$	108	$	21	$	17	$	146	$	367	$	48,571	$	49,084


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with similar risk characteristics.



	Internally Assigned Rating
(in millions)	Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total
March 31, 2016
Business loans:
Commercial	$	28,295	$	1,227	$	1,493	$	547	$	31,562
Real estate construction:
Commercial Real Estate business line (e)	1,947		—		—		—		1,947
Other business lines (f)	334		8		1		—		343
Total real estate construction	2,281		8		1		—		2,290
Commercial mortgage:
Commercial Real Estate business line (e)	2,104		32		24		8		2,168
Other business lines (f)	6,451		189		135		39		6,814
Total commercial mortgage	8,555		221		159		47		8,982
Lease financing	704		14		7		6		731
International	1,334		41		53		27		1,455
Total business loans	41,169		1,511		1,713		627		45,020
Retail loans:
Residential mortgage	1,837		1		10		26		1,874
Consumer:
Home equity	1,706		2		3		27		1,738
Other consumer	737		3		4		1		745
Total consumer	2,443		5		7		28		2,483
Total retail loans	4,280		6		17		54		4,357
Total loans	$	45,449	$	1,517	$	1,730	$	681	$	49,377
December 31, 2015
Business loans:
Commercial	$	29,117	$	1,293	$	1,011	$	238	$	31,659
Real estate construction:
Commercial Real Estate business line (e)	1,681		—		—		—		1,681
Other business lines (f)	318		1		—		1		320
Total real estate construction	1,999		1		—		1		2,001
Commercial mortgage:
Commercial Real Estate business line (e)	2,031		31		26		16		2,104
Other business lines (f)	6,536		172		121		44		6,873
Total commercial mortgage	8,567		203		147		60		8,977
Lease financing	693		17		8		6		724
International	1,245		59		56		8		1,368
Total business loans	41,621		1,573		1,222		313		44,729
Retail loans:
Residential mortgage	1,828		2		13		27		1,870
Consumer:
Home equity	1,687		1		5		27		1,720
Other consumer	755		3		7		—		765
Total consumer	2,442		4		12		27		2,485
Total retail loans	4,270		6		25		54		4,355
Total loans	$	45,891	$	1,579	$	1,247	$	367	$	49,084


(a)	Includes all loans not included in the categories of special mention, substandard or nonaccrual.


(b)	Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date.

(c)

Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. This category is generally consistent with the "substandard" category as defined by regulatory authorities.

(d)

Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies - on page F-58 in the Corporation's 2015 Annual Report. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.


(e)	Primarily loans to real estate developers.


(f)	Primarily loans secured by owner-occupied real estate.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes nonperforming assets.



(in millions)	March 31, 2016		December 31, 2015
Nonaccrual loans	$	681	$	367
Reduced-rate loans (a)	8		12
Total nonperforming loans	689		379
Foreclosed property (b)	25		12
Total nonperforming assets	$	714	$	391


(a)	There were no reduced-rate business loans at both March 31, 2016 and December 31, 2015. Reduced-rate retail loans were $8 million and $12 million at March 31, 2016 and December 31, 2015, respectively.


(b)	Included $8 million and $9 million of foreclosed residential real estate properties at March 31, 2016 and December 31, 2015, respectively.

There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at March 31, 2016 compared to $1 million at December 31, 2015.

Allowance for Credit Losses

The following table details the changes in the allowance for loan losses and related loan amounts.



	2016									2015
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total

Three Months Ended March 31
Allowance for loan losses:
Balance at beginning of period	$	579		$	55		$	634		$	534		$	60		$	594
Loan charge-offs	(75		)	(2		)	(77		)	(21		)	(2		)	(23		)
Recoveries on loans previously charged-off	24			1			25			12			3			15
Net loan (charge-offs) recoveries	(51		)	(1		)	(52		)	(9		)	1			(8		)
Provision for loan losses	145			(4		)	141			17			(1		)	16
Foreign currency translation adjustment	1			—			1			(1		)	—			(1		)
Balance at end of period	$	674		$	50		$	724		$	541		$	60		$	601
As a percentage of total loans	1.50		%	1.14		%	1.47		%	1.21		%	1.39		%	1.22		%

March 31
Allowance for loan losses:
Individually evaluated for impairment	$	88		$	—		$	88		$	31		$	—		$	31
Collectively evaluated for impairment	586			50			636			510			60			570
Total allowance for loan losses	$	674		$	50		$	724		$	541		$	60		$	601
Loans:
Individually evaluated for impairment	$	755		$	27		$	782		$	169		$	37		$	206
Collectively evaluated for impairment	44,265			4,330			48,595			44,622			4,242			48,864
Purchased credit impaired (PCI) loans (a)	—			—			—			—			2			2
Total loans evaluated for impairment	$	45,020		$	4,357		$	49,377		$	44,791		$	4,281		$	49,072

(a) No allowance for loan losses was required for PCI loans at March 31, 2016 and 2015.

Changes in the allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, are summarized in the following table.



	Three Months Ended March 31,
(in millions)	2016			2015
Balance at beginning of period	$	45		$	41
Charge-offs on lending related commitments (a)	(6		)	—
Provision for credit losses on lending-related commitments	7			(2		)
Balance at end of period	$	46		$	39

(a) Charge-offs result from the sale of unfunded lending-related commitments.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Individually Evaluated Impaired Loans

The following table presents additional information regarding individually evaluated impaired loans.



	Recorded Investment In:
(in millions)	Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Allowance for Loan Losses
March 31, 2016
Business loans:
Commercial	$	106	$	583	$	689	$	778	$	80
Commercial mortgage:
Commercial Real Estate business line (a)	—		8		8		15		1
Other business lines (b)	—